Category: Uncategorized

Saturday assorted links

1. Did migration of the non-complacent to America help make Scandinavian social democracy stable?  And Free Exchange on parties and pies.

2. Powers and abilities of Superman.

3. “Turns out that when you live with a federal symbol up close and personal, day in and day out, it’s a little harder to think of them as majestic. Bald eagles show up in the local police blotter alongside reports of drunk fishermen passing out in the wrong bunk or taking off in someone else’s forklift.”  Link here.

4. “At 180 grams, Goslow’s egg might be the heaviest on Canadian record…The record for the heaviest chicken egg in the world was reportedly laid by a hen in New Jersey, USA in 1956. That egg was 454 grams.”  Link here.

5. Video on the Nigerian bobsleigh team.

Problems with destination-based corporate taxes and the Ryan blueprint

That is a recent paper by Reuven S. Avi-Yonah and Kimberly Clausing.  It has content throughout, but this struck me as the most interesting section:

1. A U.S. pharmaceutical with foreign subsidiaries could develop its intellectual property in the United States (claiming deductions for wages, overhead and R&D), and then sell (i.e., export) the foreign rights to its Irish subsidiary (at the highest price possible). The proceeds would not be taxable. Ireland would allow that subsidiary to amortize its purchase price. This creates tax benefits in each jurisdiction by reason of the different regimes. If the Irish subsidiary manufactures drugs, the profits could be distributed up to the U.S. parent tax-free under a territorial system. If the Irish subsidiary is in danger of becoming profitable for Irish tax purposes, the U.S. parent would just sell it more IP.

2. If an Irish parent owns a U.S. subsidiary, the Irish parent can issue debt to fund the purchases of the IP. The U.S. subsidiary then invests the cash to generate more IP (expensing all equipment and deducting all salaries) and sells the IP to its parent.

3. If an Irish parent has purchased the U.S. IP rights, it would not want to license the rights to the U.S. subsidiary (income for Irish parent under Irish tax law and no deduction for U.S. subsidiary). So it just contributes the rights to another U.S. subsidiary. Could the U.S. subsidiary amortize the parent’s basis under the Blueprint? When one U.S. subsidiary licenses to another, no net tax would be paid. Any royalties would be taxable to the licensor but deductible for the payor.

4. How does the Blueprint work for services? If a U.S. hedge fund manager provides services to an offshore hedge fund, is that considered an export that is tax exempt? What if the U.S. manager develops a trading algorithm and sells it (or licenses) it to an offshore hedge fund? Are the proceeds and royalties exempt? If so, then the hedge fund becomes a giant tax shelter to the manager, because he would not pay 25% on this income–he would pay zero, with no further tax. This is much better than the current carried interest provision, which has attracted bipartisan condemnation because it enables individuals with income of many millions to pay a reduced rate. The Blueprint result is much worse.

How many direct reports should an American president have?

Arnold Kling writes:

One way to improve government operations would be through re-organization. I once wrote,

“the total number of executive entities is 157. I cannot think of any corporation in which the CEO has so many direct reports. This number ought to be fewer than ten.”

I proposed consolidation. Ideally, this would be done through legislation. However, if Congress balks, the President could informally choose to make some Cabinet officials and agency heads subordinate to others

Such informal hierarcies arise in any case, but can you imagine a private corporation that tried to run on such a basis?  NB: You can and should be horrified by this organizational detail, without adhering to the (false) view that “government should be run as a business.”  If you wish, take a large non-profit and ask how many people are direct reports to the CEO, or ask how such organizations would fare if the hierarchies of responsibility were never outlined explicitly.

What about moving the American capital out West?

If the US capital would move to the West coast where would it be located? Would this make more sense as China/ India grow in power? How would US policy change if at all having a West coast perspective if such a thing exists? What if it had moved previously at some point in our history? Is there anything that would have played out differently?

That is a request from George, a loyal MR reader.

It has become increasingly clear that the D.C. bureaucracy and policy world will be able to thwart most of what the Trump administration might have been thinking of doing.  In this particular case I see much upside in that, but still it is a dangerous precedent.  The political culture of the ruling capital city should not always hold such sway.

The longer-run problem, of course, is that putting the national government in a city makes that city “more professional” in a way that also will turn the city more toward the Democratic Party, noting that many cities in America are fairly Democratic to begin with.

Increasingly, I am a fan of the idea of distributing our government across various cities and regions of the country. so here are a few suggestions, focusing on the West:

1. The agencies concerned with economic regulation would go to Salt Lake City, Utah.

2. The offices concerned with science policy, including the NIH and NSF, would be relocated in or near Silicon Valley.  I believe the ability to absorb the dynamism would outweigh the rent-seeking problem.  There is already plenty of venture capital in the Bay Area, and the lure of government funds is relatively non-corrupting there.  Rents are high but the total number of staff is not enormous, so give them each a big raise.

3. The Department of Agriculture would go in Honolulu, Hawaii.  It would be harder to get to, and once you were there you might just go swimming.  An alternative would be Twin Falls, Idaho “…near the site where Evel Knievel attempted to jump across the Snake River Canyon in 1974 with a rocket-powered motorcycle.”

4. The National Endowment for the Arts would be put in southern California, so as to be reminded that America’s heritage is one of popular culture.  This would be one of the agency moves easiest to pull off.

5. The defense establishment would be clustered near Los Angeles as well, where there has long been a military connection and also a talented pool of engineers and numerous airports and access to the ocean.

6. I see New York City capture of the Treasury as an overrated issue, so if it must go out West I am fine with Denver, Dallas, or Houston, cities with a fair number of direct flights to back east.  San Francisco would work in the abstract, but rents are too high there.

7. The presidency goes to Sacramento, which is already a major capital and has enough space for something larger and better-guarded than the White House.  It is also not too close to the other parts of the federal government, and it would lower the relative status of the governor and legislature of California, to the benefit of America’s largest and richest state and bellwether of our future.

It is hard to predict how big a change all this would make, or how much of the change would be due to decentralization per se, rather than the movement westward.  Maybe those living in the western part of the country would feel less like outsiders, while those marooned in the East simply would go insane.  New England would be the new Rust Belt, and in some ways it already is the current Rust Belt.  Foreign policy would be more Pacific-oriented, mostly a good thing if believe in doing something rather than nothing, but that could backfire as well.

Virginia real estate would be worth less.

As for moving the federal government out West earlier in American history, I don’t see how one might run a bureaucracy where a professional major league baseball team cannot be supported.  So we’re talking 1950s or later, and even up through the 1960s.  Probably the main effect would have been to ruin California even more quickly than turned out to be the case.

Urban productivity in the developing world

That is a new NBER working paper from Ed Glaeser and Wentao Xiong.  Here are a few things I learned from it:

1. “As agglomeration size doubles, wages rise by approximately five percent in the U.S. and Brazil, but the link is much larger in India and China.”

2. “Soichiro Honda began his remarkable career as a car mechanic.”

3. Per capita gdp is three times higher in Shenzhen than in the rest of China.  Bangalore per capita gdp is 2.5 times higher than the rest of India.

4. In the United States, urbanites earn 30% more, and this gap does not disappear with controls for human capital attributes.

5. The urban to rural earnings gap is 45% in China, 122% in India, and 176% (!) in Brazil.

6. In the U.S….”as area size or density doubles, wages increase by…about five percent.”  But agglomeration economies are much stronger for India or China than for the U.S. or Brazil.  Brazil is a city vs. countryside effect, not so much about size of the city per se, Sao Paulo aside.

7. “In 1961, Benjamin Chinitz argued that New York City was more resilient than Pittsburgh during the 1950s, because New York City had a culture of entrepreneurship that meant that its business leaders were good at adapting to industrial decline.  In modern language, we might describe New York as having a healthy endowment of entrepreneurial capital because its dominant industry, garment production, had limited-scale economies and few barriers to entry.  In contrast, Pittsburgh had U.S. Steel, and the steel industry had large-scale economies, which meant that Pittsburgh trained company men instead of entrepreneurs.”

Overall I found this a very good paper for stimulating thought.  There is also a new paper by Joan Hamory Hicks, Marieke Kleemans, Nicholas Y. Li, and Edward Miguel on agricultural productivity gaps, it is receiving high praise on Twitter.  I have not yet had a chance to look at it.

America’s scientific work force is aging

The study, by David Blau and Bruce Weinberg, both professors of economics at Ohio State University, found that the average age of employed scientists increased from 45 in 1993 to nearly 49 in 2010. Scientists aged faster than the U.S. work force in general, and across fields — even newer ones, such as computer and information science. The study includes those natural and social science, health and engineering degrees.

The trend will only continue, with the average scientist’s age increasing by an additional 2.3 years within the near future, without intervention, according to a model included in the study.

I found this sentence illuminating:

Still, McDowell said he wouldn’t want to bring back mandatory retirement for professors.

Here is the study, here is the story, with some useful visuals as well.  As the article notes, even if older scientists are still productive, this can skew or limit the incentives for younger scientists and limit their creativity.

You can calm down about internet service providers selling your browser history

In light of these laws and institutions safeguarding user privacy, members of the House of Representatives need not fear that voting for the joint resolution to rescind the FCC’s privacy rule will mark the end of individual privacy on the Internet.

Here is the full piece by Ryan Radia, via Brent Skorup.  He also recommends this longer Georgia Tech paper of broader interest (pdf).

Tuesday assorted links

1. Dog kennel apartments?

2. How much of the increase in complacency is due to welfare programs?  And Noah and I debate how to shake up the complacent.

3. Yiwu, China.

4. New on-line book by Kevin O’Rourke and Jeff Williamson on the spread of modern industry to the periphery.

5. Douglas L. Campbell now has “A blog about Manufacturing, International Trade, Monetary Policy, and replication by an academic economist.

6. Megan McArdle visits Salt Lake City, recommended.  There is an answer to many of America’s problems, it’s just that many of you don’t want it.

Why might better matching reduce mobility?

Wil Wade emails me some very interesting points:

As someone who has changed jobs a fair amount and recently, I thought I might be able to give some ideas on why better matching and results decreases mobility. Some of these might be fairly easy to set up tests for. (Note I am a programmer, someone with many job prospects in almost anywhere I could want, so salt as desired.)

1. You think you will find something. Everywhere has lots of jobs posted, so if feels like if you just wait until tomorrow, that job in your area will pop up. Why look at another city, when your city posts 100 new jobs a day (none of which will be good for you, but you don’t know that)

2. Perhaps especially in white collar jobs, you never get a job from a job posting. Never is a bit strong, but your network leads to most jobs. (of the 5 jobs I have had in the ~10 years since graduating, three of those were network based) The less mobile your network, the less mobile you can be.

3. Comparisons are really hard to make when cost of living varies so much. I do not know if the variance in cost of living has increased over the past 30 years, but I do know that it feels really high. As a programmer I easily could move to any of the large cities SF, LA, NYC. But the cost of living adjustment is really hard to make. And currently impossible to make at an I could move anywhere level.

This one is a real blooper and I cannot let it pass by

I don’t usually “go after” news stories and headlines but this one is such a bad mistake, and it so affected my Twitter feed (I was swindled too), that it deserves comment (the pointer by the way comes from Alex, our Alex).  Stephanie Saul wrote in The New York Times:

Nearly 40 percent of colleges are reporting overall declines in applications from international students, according to a survey

Here is what the opening of the survey itself said:

39% of responding institutions reported a decline in international applications, 35% reported an increase, and 26% reported no change in applicant numbers.

The NYT article does not reproduce the more positive pieces of information, from its own cited study, which may be suggesting international applications are not down at all, or perhaps down by only a small amount.  If you look at all the data, they probably are down, but by no conceivable stretch of the imagination should the 40% figure be reported without the other numbers.  The headline of the piece?:

Amid ‘Trump Effect’ Fear, 40% of Colleges See Dip in Foreign Applicants

I look forward to not only a correction but in fact a retraction of the entire article and its headline.

The show so far, a continuing series

Hint: Trump is not working with Paul Ryan to disassemble Medicare as we know it.

Those of us who predicted gridlock, stasis, and an excessively weak Trump presidency are so far right.  Hardly anything has gotten through, though we have managed to scare off 40% of the potential foreign applicants for higher education, one of America’s most successful export industries.  Tax reform, which is not an ideological touchstone, won’t be easy, and the Republicans have not reached prior agreement on many of the (numerous) details.  Russia will continue in the headlines.  The weakness of political parties remains an underlying theme.  Overall, it is good that health care reform is off the table for now, because superior alternatives were not likely to result.

Is it good or bad, all things considered, that foreign governments are seeing increasing latitude to ignore Trump’s threats?  And why exactly does Trump dislike Germany so much?

By the way, the end of global QE is rapidly approaching, with U.S., European, and possibly Chinese central banks all tightening at about the same time; maybe that’s the real news!

Addendum: Alex writes to me:

39% of responding institutions reported a decline in international applications, 35% reported an increase, and 26% reported no change in applicant numbers.

http://www.aacrao.org/docs/default-source/TrendTopic/Immigration/intl-survey-results-released.pdf?sfvrsn=0